It's the retailers' story this year. Earnings are still down for most of them in the year-over-year quarter, though some have raised their outlooks a bit for the rest of the year, with holiday shopping looking very uncertain. The consumer, already beaten down by more than a year of recession and faced with unemployment, has cut back and is still shying away from spending. This atmosphere is prevalent with the department stores, including moderate-price retailer JCPenney Co. (NYSE:JCP).

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Outlooks Cautious If Not Weak
JCPenney's sales outlook for the rest of the year is a bit better than last year, as it predicts a fall-off of somewhere around 4-6%, instead of the more than 10% drop off last year's holiday quarter had. JCP expects to earn 70 to 85 cents per share in their upcoming holiday quarter.

Macy's (NYSE:M) and Kohl's (NYSE:KSS), two other key department stores, gave outlooks for the fourth quarter which disappointed analysts. Sears (Nasdaq:SHLD), which reports quarterly earnings soon, is expected to have another year-over-year quarterly decline, while Dillard's Department Stores (NYSE:DDS) saw its October sales drop 11%.

While high-end retail is showing some signs of life and discounters have done well in the recession, the mid-price department stores seem to be taking the worst hit.

Holidays On Their Minds
JCPenney sees upcoming holiday sales as a tough proposition, in part because they've cut inventory. JCP's CEO Myron Ullman III acknowledges there will be fewer bargains, yet consumers "will be on a very tight family budget." Macy's third-quarter earnings were improved year over year, yet it also projects a difficult holiday quarter, while Kohl's third-quarter earnings were good but it too sees at least a mild decline for the holiday quarter.

The department stores all expect shoppers to spend less, but despite the clearance of inventory from last year, price-cutting may loom anyway simply due to competitive pressures.

JCPenney's Quarter
The earnings for JCPenney for its third quarter were a net income of $27 million, or 11 cents a share, versus $124 million or 56 cents a share last year. A write down of the value of pension plan assets of $73 million or 19 cents a share was included. On an adjusted basis, the income was $72 million or 30 cents a share, compared with $103 million or 46 cents a share, so their cost-cutting didn't come out impressively on the bottom line. Revenue fell slightly from $4.32 billion to $4.18 billion.

The company also raised its full year outlook to a range of 93 cents to $1.08 per share, up from 75 cents to 90 cents previously. To put some perspective on all this, JCPenney's earnings performance has been less discouraging than Sears, but certainly not in the same realm as Kohl's.

JCPenney's Stock
JCP's stock, along with many of the other department store stocks, rose steadily this year, especially since March, and currently trades at just under $31, in the higher end of its 52-week range. Similarly, Macy's has had a huge run up, but without much fundamental justification, with its high debt load and lackluster earnings. So, for fundamental value or growth investors, the best earnings picture seems to be from Kohl's, while JCPenney and most of the others still have a lot of work to do swimming upstream in the rough currents of consumer uncertainty, high unemployment and plain fear of spending, at least at department stores. (For more, see Analyzing Retail Stocks.)

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